Durrant Pate/ Contributor

The Government of Jamaica (GOJ) is removing the exchange rate risk from a significant portion of the country’s national debt, through its just closed cash tender offer to repurchase a series of existing notes.

The buyback two series of notes due 2025 and 2028 will be fully dominated in Jamaican dollars and payable in United States dollars. This is a marked opportunity for the country, as this is the first time local global bonds are being issued in local currency.

The invitation opened on Thursday, October 19, 2023 and expired last Friday, October 27, 2023. In line with improved access to capital markets, the GOJ is taking advantage of this by issuing the local currency notes, which is part of a broader programme for Jamaica to proactively manage its external public debt.

GOJ de-risking fiscal account

The tender offer and new notes should also reduce refinancing risk on the GOJ’s upcoming maturities. Notably, the cash tender offer and the new instruments reflect a maturity extension and the GOJ de-risking the fiscal account since it would result in Jamaica removing the exchange rate risk from a significant portion of the debt.

Approximately 60 per cent of Jamaica’s national debt is denominated in foreign currency and as the exchange rate depreciates, there is a simultaneous increase in the debt level in Jamaica dollar. Overall, the new issuances in Jamaican dollars bode well for the country’s interest rate burden, since they will reduce hard currency debt, which reduces the interest cost for US-dollar denominated debt in Jamaican-dollar terms.

With this in mind, the GOJ is positioning itself for an improved fiscal position by reducing the foreign currency component of the debt with issuing the new notes in Jamaican dollars. The Government’s interest burden remains high but it is also decreasing.

Issuing these notes and extending Jamaica’s debt maturity should support a general reduction in the Government’s debt burden, in line with the targeted 60 per cent of Gross Domestic Product (GDP) by fiscal 2027.

This will free up domestic resources to finance targeted social programmes and spending on development projects, without deviating from medium-term fiscal goals. This will allow the Government to address structural constraints to the country’s growth prospects, which bodes well for the country’s overall growth prospects.

Jamaica’s commitment to fiscal consolidation, debt management, and economic growth have put it on a positive path for the future, as captured by the recent credit upgrades. The upgrades enhance Jamaica’s reputation as a reliable borrower, which should help to attract more investment and help to fuel job opportunities and GDP growth.